France hopes to raise €8bn at bond auction

By: Natalie Kenway & Jonathan Boyd | 05 Jan 2012

France is expected to sell €8bn of debt at a bond auction today in an attempt to push down yields and quell fears the country’s AAA-rating is at risk.

10-year bonds have fallen on each of the past six days, pushing yields as high as 3.37%, the most since December 9, and were around 3.31% yesterday. The highest point of 3.82% was reached on 17 November.

Investors are concerned the eurozone debt crisis will impact France’s creditworthiness and force credit ratings agencies to downgrade the country from AAA.

Yesterday Germany sold €4.1bn of bonds at auction, getting more bids than its maximum target of €5bn, according to Bloomberg.

The gap between French and bund yields narrowed after the sale to 139 basis points but it compares with a premium of 46bp for Finland and 38bp for the Netherlands – both of which are also AAA-rated.

Portugal also held a bond auction yesterday, selling €1bn of 3-month bills at 4.346%, down from 4.873% at the previous auction on 7 December.

Italy and Spain will also hold debt auctions in the coming weeks. Spain’s bond yields widened yesterday amid talks it is considering seeking support from the EU and IMF. The 10-year yield closed 15bp wider at 5.4%.

Sweden’s Dagens Industri reports that Spain’s financial sector is under renewed pressure today, after the government said it would force banks to put aside up to €50bn to cover bad property loans. That figure is roughly equal to 4% of the country’s GDP.

Citing quotes from Spain’s finance minister Luis de Guindos carried in the Financial Times, the Swedish paper notes that the new government is pushing banks to clean up their own balance sheets to avoid putting additional strain on the national finances.

Meanwhile, Greece’s prime minister Lucas Papademos has been reported stating that the country’s workers must accept lower wages and incomes in order to keep the country’s rescue on track. Unless they do so, there is a greater risk of not receiving the necessary rescue financing, and a possible unstructured default by March.